New research has laid bare the extent to which UK retail investors are gripped by so-called 'home bias' when making their investing decisions.

Home bias is a well-established phenomenon in investing whereby a person invests more heavily in the assets of their home nation than the size of its stock market in global terms implies they should.

There are many reasons behind this, but the main one is a preference for things we are most familiar with.

Research by Charles Schwab has revealed the extent to which UK retail investors are gripped by so-called 'home bias'

The problem with this is that in investing, familiarity and long-term performance are not related.

Companies that people know well, such as a supermarket they shop in every week, can see their shares slide while the shares which perform best are often companies an investor has no personal dealings with at all.

The Home Bias Report put together by investment firm Charles Schwab and provided to This is Money is based on interviews with 200 UK retail investors, each with at least £25,000 in disposable assets.

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It found that 3 in 4 of these investors (74 per cent) aim to invest 'the majority of their assets' in their home market.

Another notable finding was that a mere 7 per cent are looking to make significant investments into the US market. This is surprising given US shares have substantially outperformed UK shares over recent times.

It also flies in the face of sound investment theory, given the UK accounts for only 6 per cent of the world stock market, while the US makes up a whopping 54 per cent.

Europe excluding the UK is 19 per cent of the world market, emerging markets account for 13 per cent and Japan 8 per cent.

When asked for the reasons behind these intentions close to half (48 per cent) said they feel 'most informed' about companies in their own market and 39 per cent feel that they 'understand the dynamics of their domestic economy better' than other parts of the world.

The research also looked at how the ongoing Brexit saga is impacting UK investors' views, and came up with some interesting numbers.

Some 57 per cent believe Brexit will have a 'positive long-term impact' on UK stocks while only 59 per cent of respondents said they had considered diversifying their portfolios in light of the Brexit vote.

Kully Samra, vice president at Charles Schwab commented: 'Home bias is a universal phenomenon, but our research suggests it is particularly pronounced in the UK. There are many reasons why this might be the case.'

'A large part of asset allocation involves assessing how to maximise returns whilst mitigating risk. If investors feel comfortable and familiar with their home market, they are more likely to invest in it, even if this decision results in a less profitable, higher risk/return trade-off for their portfolio compared to investing in other markets.

'Over half of investors say that they see value in investing in the US. This is a high figure but significantly lower than the value UK investors ascribe to their home market.

'This sentiment in turn drives inflows, with only 7 per cent interested in allocating capital to US stocks, compared to nearly three quarters backing UK companies,' Samra continued.

'The S&P 500 has by far outperformed the FTSE 100 over the last few years, so this UK favouritism demonstrates how UK investors are actually weakening their portfolios and cutting themselves off from potentially superior returns.'